The main difference between the languages is that XQuery drops the implicitly recursive template application mechanism.
This isn't really a deficiency in XQuery, it is the main design aim, to enable better optimisations in database scenarios.
Other features lacking in XQuery are more surprising: experience over the last 7 years has shown that xsl:analyze-expression
and (especially) xsl:for-each-group were badly needed. Hopefully XQuery will not have to wait 7 years for 2.0.